What Is Chapter 11?

Businesses that have reached a point where they are struggling to pay back loans and afford other normal costs of business (such as payroll, rent, electricity, and other bills) may have to consider the unfortunate but necessary process of going through bankruptcy proceedings.

First of all, this process deserves a better reputation than it has now. While going through bankruptcy is a sign of temporary setbacks, it does not necessarily mean that someone is a failure at business or even that a business is doomed to failure.

So, since it is at times necessary to reorganize a business’ finances, what is the best possible method? You’ve probably heard there are different “chapters” of bankruptcy. Which does your business need?

In this post. I’d like to start with Chapter 11. According to Bradford Law Offices, PLLC, it allows your business to stay open and running (and thus generating revenue) while you go through the bankruptcy process. It also protects you against creditor harassment.

There are two other very crucial elements of Chapter 11. The first is the fact that this process still allows for the possibility of obtaining loans at a favorable interest rate. That means you potentially find new investments to pay off the debts that have accrued. The second point is that litigation against you is put on hold. If you are so deeply in the hole that you are in the process of going through litigation, this can freeze that process while you work through your debts.

In general, Chapter 11 is used by businesses (often new ones that are struggling in their first years to bring in enough revenue and have high startup costs) to get a little breathing space. This space allows for the restructuring of debts and can, therefore, offer a fresh start to the business.

A few words of warning, however. Chapter 11 is also a very complex form of bankruptcy, and it can be expensive, which of course is hard for business owners who are already struggling to make payments.

Chapter 11 is perfect for businesses that still have real potential to make significant revenue but are simply too bogged down by debt. Reorganizing debt and getting that breathing room can make all the difference to such businesses.

There are countless examples of now successful businesses that required only a little reorganization to thrive. These can be of any size, from personal businesses to corporations.

If your business, no matter its size, is struggling with its debts, I hope you will find this information helpful. Also, remember, though this is an excellent option for many struggling businesses, there are other chapters of bankruptcy, which I hope to review soon in a few new posts.

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